Correlation Between Foreign Bond and Fixed Income

Can any of the company-specific risk be diversified away by investing in both Foreign Bond and Fixed Income at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Foreign Bond and Fixed Income into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Foreign Bond Fund and Fixed Income Shares, you can compare the effects of market volatilities on Foreign Bond and Fixed Income and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Foreign Bond with a short position of Fixed Income. Check out your portfolio center. Please also check ongoing floating volatility patterns of Foreign Bond and Fixed Income.

Diversification Opportunities for Foreign Bond and Fixed Income

0.93

Correlation Coefficient

Foreign Bond  Fixed Income

Almost no diversification

The 3 months correlation between Foreign and Fixed is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Foreign Bond Fund and Fixed Income Shares in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fixed Income Shares and Foreign Bond is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Foreign Bond Fund are associated (or correlated) with Fixed Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fixed Income Shares has no effect on the direction of Foreign Bond i.e., Foreign Bond and Fixed Income go up and down completely randomly.

Pair Corralation between Foreign Bond and Fixed Income

Assuming the 90 days horizon Foreign Bond is expected to generate 1.03 times less return on investment than Fixed Income. In addition to that, Foreign Bond is 1.15 times more volatile than Fixed Income Shares. It trades about 0.12 of its total potential returns per unit of risk. Fixed Income Shares is currently generating about 0.14 per unit of volatility. If you would invest  875.00  in Fixed Income Shares on December 29, 2024 and sell it today you would earn a total of  26.00  from holding Fixed Income Shares or generate 2.97% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Foreign Bond Fund  vs.  Fixed Income Shares

Foreign Bond

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Bond Fund are ranked lower than 9 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Foreign Bond is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fixed Income Shares

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Fixed Income Shares are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Fixed Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Foreign Bond and Fixed Income

The main advantage of trading using opposite Foreign Bond and Fixed Income positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Foreign Bond position performs unexpectedly, Fixed Income can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Fixed Income will offset losses from the drop in Fixed Income's long position.

The idea behind Foreign Bond Fund and Fixed Income Shares pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.